Investors have been lunging for GlaxoSmithKline Plc’s stock price, immediately the company announced a special dividend of N7.10k plus a final dividend of 40k.
The above proposed payout sent dividend yields to as high as 30 percent, which means that investors expects a higher return on their investment?
The consumer goods company said the special dividend would be paid from retained earnings brought forward as at year ended 31st December 2017, including profit sales of drinks as at 31 December 2016.
Stock price has rallied some 18 percent year to date, outperforming the market all share indexes at 8.4 percent, and closing at 25.50 the previous week.
One would have expected the market to react to GlaxoSmithKline giving its disappointing fourth quarter performance.
The fast moving consumer goods (FMCG) industry and health care firm recorded a 88.41 percent in full year 2017 net income to N486.43 million while sales increased by 11.90 percent to N16 billion.
The company was beleaguered by rising material costs as production cost surged 114.3 percent from N5.4 billion in 2016 to N11.6 billion in 2017.
GlaxoSmithKline Consumer Nigeria Plc., one of Africa’s largest consumer healthcare companies, producing leading brands such as Panadol with a market cap of N30.5 billion, according to data from the Bloomberg Terminal.
The company like other top pharmaceutical players suffered a great challenge on the back of the lengthy recession that hammered the Nigerian economy in 2016, making the country go into its first full-year contraction in 25 years, and thus triggered acute dollar shortage that stifled the non-oil sector, as Africa most populous nation contracted 0.5 percent to record its worst performance since 1991.
The sector was fraught with shortage of naira liquidity as an increase in government borrowing at that time spurred banks to invest in the safety of sovereign debt rather than lending to businesses or consumers, a situation that drained cash out of the system, as the sector witnessed high operating cost since most of the raw materials are mainly imported.
However, the economy managed to limp off the recession in the second quarter of 2017 after expanding 0.55 percent, on the back of a rebound in oil prices, following an agreement reached by OPEC members in 2016 to shave some 1.2 mbpd off the market to nip a growing supply glut in the bud and relaxed hostilities in the Niger-Delta.
In addition, the non-oil sector recorded a positive growth for the second consecutive quarter, spurred by on-going recovery in the manufacturing sector due to improved Foreign Exchange (FX) liquidity.
Pharmaceutical firms like GSK saw a rebound in profit and economic activities, which attracted investors’ appetite and interest to its stocks.
MICHEAL ANI
